TTIP is a Horrible Idea for the U.S.

April 23, 2016

The above-linked article reports on opposition in the U.S. to the Transatlantic Trade and Investment Partnership – otherwise known as “TTIP” – another of the Obama administration’s hare-brained trade schemes.  (Geez, I can’t believe I voted for this guy based on his promise to fix America’s broken trade policy.  Boy, was I suckered!)

The TTIP trade deal is a deal with the European Union, or EU.  Here’s a chart of how America’s balance of trade in manufactured goods with the EU has trended since 2001:  EU.  Our trade deficit with the EU was already bad in 2001, but improved some from 2005 through 2009.  Since the onset of the slow recovery from Great Recession, however, our trade deficit with the EU has worsened exponentially as Europe has leaned hard on exports to prop up its economy.  In 2015 this deficit totaled almost $150 billion.  Expressed in per capita terms, that’s a deficit of $247.38 for every man, woman and child in Europe.  That’s little better than our deficit with China, at $283 per capita.

Of the 24 nations represented by the EU (not including tiny Malta), the U.S. has a surplus of trade with only six small nations:  Belgium, Cyprus, Latvia, Lithuania, Luxembourg and the Netherlands.  Together, these countries represent only 5% of the EU’s land mass.  So the U.S. has a trade deficit with 95% of the EU.

It’s often said that low wages are what causes trade deficits.  Then how does one explain such an enormous deficit with the EU, a conglomeration of rather wealthy nations with very well-paid workers?  Or some say that our big deficits with China and Japan are caused by the manipulation of their currencies.  No one accuses the EU of that, and yet we have a huge trade deficit with them just the same.  Or some say that America needs to improve its competitiveness.  Then how do you explain our trade deficit with France – $232 per capita – arguably one of the least competitive nations in the western world?

The problem is that the one thing the EU has in common with others like China and Japan is a high population density.  The EU has 325 people per square mile.  China’s is 380 people per square mile.  Japan’s is 902 people per square mile.  Compare these figures to the U.S. at 87 people per square mile.  It’s this disparity in population density that drives these trade imbalances.  It’s caused by the imbalance in the markets that’s caused by overcrowding.

So the problem with this TTIP deal is that it’s rooted in a relentless pursuit of free trade theory that fails to account for the role of population density in driving these trade imbalances, instead of being rooted in the pursuit of balance.  The U.S. wrongly believes that lowering trade barriers is always good for any nation, since it doesn’t understand the role of population density.  And the EU would never agree to any deal that doesn’t also lower barriers in the U.S.  It’s inevitable that such a deal will only exacerbate America’s trade deficit.